Fertiliser is one of the most entrenched and widely used agricultural inputs so far as the Indian farmers are concerned. It has also been a product which has been receiving continuous government support for its promotion and market development, as it is directly contributing to food production hikes.
It is estimated that it alone contributes about 50-60 per cent to incremental output in agriculture. But still, even after more than three decades of focus on this input, there are many problems in this market in terms of product usage, frequency and purchase.
Nature of Indian Fertiliser Market:
The present level of fertiliser consumption is still very low compared to many other countries which itself gives an idea of the potential market for fertilisers in the country. Per hectare consumption in India in 1995-96 was 75 kg compared with 560 kg in Netherlands, 407 kg in Japan, 314 kg in South Korea, 261 kg in China, 110 kg in Sri Lanka, and 101 kg in Pakistan.
It is much lower than the Asian average of 130 kg. Further, there are sharp regional variations in consumption of fertilisers ranging from 170 kg in Punjab to 107 kg in Tamil Nadu and much lower in many other states of the central and eastern India.
On the whole, 70 per cent of fertiliser is consumed in irrigated areas only and in states of U.P., A.P., Maharashtra, Punjab, M.P., West Bengal, and Karnataka. Even within states there are variations in consumption across districts. Besides this, about 2/3 of the fertiliser consumption is in cereal crops mainly rice and wheat.
It is seen that across the different classes of farmers, fertilisers are largely used by large and medium scale farmers, whose holdings fall in the categories of above 5 hectares and 2-5 hectares respectively. It is important to note that more than 70 per cent of holdings in India are below 2 hectares.
And, only about 25-30 per cent of the fertiliser used, goes to small and marginal farmers. In terms of absolute numbers also, the small and marginal farmers use fertiliser only to the extent of 60-70 per cent of total households in those categories as against 80-85 per cent in the case of medium and large farmers.
Further, across the country, on the average, 30 per cent of the farmers do not use fertilisers continuously. This proportion is relatively higher among the marginal and small categories. Across the states, the proportion of farmers not using fertilisers continuously is very high in the states of Bihar, Rajasthan, Orissa, and Kerala. Only Punjab has one per cent of farmers who do not use fertilisers regularly.
This has something to do with extension delivery services. As far as the reasons for discontinuous usage was concerned, they were largely in the nature of lack of irrigation water, high price of input, lack of capital or credit facilities, and the cropping pattern itself in that order of importance. In this respect at least, there were no major class differences.
The major sources of information on fertiliser practices were the fellow farmers and dealers in the given order followed by village level worker. Across states, only HP was more dependent on radio, television and university extension, perhaps because of the terrain problems.
As far as product purchase is concerned, the major points are private dealers and co-operatives across all types of farmers. These could be located at the village itself, in nearby village, town or main market. The reasons for preference of these channels is related to the availability, nearness, quality assurance, and credit facilities.
Product:
There are problems of inefficient use of the product due to over or under dosage and the method of application. The efficiency of fertiliser use, has been found to be as low as 10-30 per cent across types of fertiliser even in relatively better off areas like central Gujarat.
Also, widely prevalent imbalanced use of various types of fertilisers (nutrients) creates problems for the soil and the crops in the relatively longer term. The product is perceived to be having many ill effects like leading to pest growth, weed growth, soil fertility decline, and soil texture damage. The recommended practices for fertiliser use and cropping methods are not followed by the farmers.
In fact, the fertiliser buying and usage behaviour of the farmers as well as non-purchase and usage behaviour of other farmers can be understood clearly which also provides clues to the possible remedies, to improve the market performance at the consumer level in terms of purchase and usage of the product. These solutions could be in the form of better extension, network building with other agencies, which deal with other inputs and through improving product performance.
These suggest an improved marketing mix in this product line, that is enumerated below:
Since the product is nutrient specific, and brand loyalty towards the product cannot be established in general, the factors of supply and availability of fertiliser to the farmers become instrument in making purchase decisions. Hence, the industry depends crucially on distribution channel.
Thus, distribution being the heart of fertiliser marketing needs to be looked into from a different perspective altogether. Fertiliser and distributed through institutional channels, company outlets and private dealers. Among the institutional channels, co-operatives and agro- industries corporations are major players. The common channels of distribution are depicted in Fig. 4.2.
Private dealers distribute about 65 per cent of the total fertilisers sold. This is done through a network of more than 1,90,000 retail points which is about 70 per cent of all outlets (Table 4.1).
The remaining 35 per cent is sold by the institutional agencies or recently Madhya Pradesh, distribution of fertilisers through co-operatives and apex bodies is as high as 70 per cent and 56 per cent respectively, and in some hilly states like J&K and H.P. as much as 90 per cent.
But, in all other states, it is in the range of 10-40 per cent. With the exception of Gujarat, close to half or more fertiliser retail outlets in major states belong to the private trade with their proportion going as high as 70-75 per cent in Andhra Pradesh and Maharashtra and 93 per cent in Assam, Bihar and West Bengal.
The number of fertiliser sale points has grown to over 2.6 lakh and each outlet on the average handles 122 tonnes of fertilisers which makes for a turnover of Rs. 2.5 lakh per outlet. However, there is a wide variation across states in the volumes traded per outlet.
Further, each dealer with the products of multiple companies ranging from 5-15 across dealers. The companies are fairly reconciled to this situation. The number of companies represented by a dealer was the highest in Andhra Pradesh where no dealer represented less then 5 companies and 43% of them more than 10 companies each.
The most common channel is from the supplier to the wholesaler and on to the retailer. However, a manufacturer can also supply to a retailer directly, and can also do retail business himself. Some companies sell directly, to a certain extent, to farmers through company depots or service centers. This neither falls into the traditional private channel nor into the institutional channel but as an example of the single window delivery approach is often cited as an illustration of sales plus service approach.
The pattern of fertiliser distribution in co-operative sector varies from state to state. Generally co-operative network operates through a 3-tier system. However, in some states such as Haryana, the system work on a two-tier basis, while in other like Gujarat, a four-tier system exists. In a number of states, the Apex Co-operative Marketing Federation functions as a wholesaler.
In Tamil Nadu, in addition to the apex marketing federation, the Tanjore District Co-operative Marketing Federation is also recognised as the wholesaler by the state government. In Uttar Pradesh, besides the apex marketing federation, the Cane Unions’ Federation also functions as a state level wholesaler so far as supplies to cane co-operative marketing societies are concerned.
The village level Primary Agricultural Co-operative Societies (PACS) are the ultimate units in the co-operative structure. These societies act as the retail sales points for fertiliser. Nearly 50% of the total PACS are involved in fertiliser business. The village level societies generally receive fertiliser supplies either directly from the co-operative wholesaler, i.e., apex marketing federation or from sub-wholesaler, i.e., district/central primary marketing societies.
Almost all the state co-operative marketing federations are involved in fertiliser marketing either directly or indirectly by doing liaising function. While the co-operatives sector manufacturers are bound by their byelaws to sell only through the co-operative system, private sector can and does market the production of other manufacturers as well as imported stocks.
The share of co-operatives in fertiliser distribution has been declining though the overall consumption in the country has been increasing constantly.
Some of the important constraints in the co-operative marketing system and reasons for their declining share are:
1. The major portion of the distribution margin is retained by the federations themselves and the lower-level societies are not adequately compensated by apex federation.
2. Co-operatives are not able to compete with the private trade because firstly, the private trade can offer many concessions which co-operatives cannot afford to give due to their procedural constraints, and secondly, private trader can take quick decision while decision-making on co-operative is time consuming.
3. The rate of interest on fertiliser credit is very high.
4. Cost of operation is high due to locational disadvantage as cooperatives unlike private traders operates even in the remote areas where turnover and viability are at a low level.
5. Single window approach is lacking in most of the co-operatives.
6. Poor management coupled with lack of professionalism is a major constraint.
Despite the range of manufacturing and trading activates, fertiliser business (manufacturing and trading) of State Agro-industries Corporations (SAICs) still contributes a significant percentage to the total turnover of a majority of the SAICs, though the percentage contribution varies rather widely from nil in Kerala to as high as 80 per cent in Andhra Pradesh.
The fertiliser marketing systems adopted by different SAICs vary widely but broadly fall into the following three categories:
A. Exclusively through private trade.
B. Exclusively through Agro Service Centres (ASCs) which are either owned by the corporation or run by entrepreneurs/dealers promoted by SAICs and deal exclusively with products channelised through SAICs.
C. A combination of A and B.
The major constraint faced by many SAICs in expanding their fertiliser business is lack of adequate working capital. In fact, SAICs which are doing relatively well in fertiliser marketing are those which receive soft short-term loans. The differential higher margin for fertiliser, which the SAICs enjoy as compared to the private trade at present does not appear to be adequate in view of the various functions they are expected to perform.
Among the various types of fertiliser sale points, the ASCs of various agencies represent a system which has an inbuilt provision for providing inputs as well as services and technical guidance all under one roof. It is in this regard a facility which stands out as an example to be multiplied even though the share of all the service centres in the annual fertiliser turnover may not be more than 4-5 per cent at present.
These Service centers also serve as an informal contact point between the end user and the input producer. Besides ASCs, Gujarat Agro Industries Corporation (GAIC) has a very innovative system of distribution called UTs (Unemployed Technicians) who are unemployed agricultural graduates and appointed as distributors of the corporation’s products. They now number about 400.
In India, the Gujarat State Fertiliser Company (GSFC) was the first to realise the importance of promotion of package of input and improved agricultural practices and start 22 Farm Information Centres (FICs) in 1968. These centres act as the nucleus for all the extension, promotion and rural development activities of the company like visiting farmers on their agricultural problems, carrying out field demonstrations on farmers’ field, etc.
The average turnover of a GSFC service center was Rs. 1.6 million in 1990-91. The overall percentage share of different inputs, and services sold was fertilisers 91.7, seeds 4.1, pesticides 2.0, saving units 1.7, and biofertiliser 0.6.
The service center approach struck deeper roots in the early 1970s when state agro industries corporations (SAICs) decided to set up such centres in a big way. These centres are known by various names such as Farm Service Centres, Kisan Seva Kendras etc.
While the motto of a service center is service rather than profit, it is essential for them to be economically viable and self-supporting in order to be sustainable. Service centres are at present being operated by several fertiliser companies and the state agro industries corporations.
Some of such centres are- IFFCO and KRIBHCO, both of which are major producers in the cooperative sector, operate a total of 227 Farm Service Centres (FSCs) (60 per cent of total in the country) with 175 belonging to IFFCO and rest to KRIBHKO. Outside the traditional co-operative marketing channel, these are the only outlets selling the company’s products.
The main theme of these centres is to help the farmers in not only getting quality inputs but also in educating them by providing the latest technical know how in the field of agriculture. Sales are in cash basis.
A very interesting feature of marketing through service centres was the sale of Rs. 22.7 million worth of zinc sulphate in 1990-91 by IFFCO which it does not produce, but procures from small manufacturers by inviting quotations and sells it to meet the need of wide spread zinc deficiency in the soils.
The 40 Shaktiman Krishi Sewa Kendras (SKSKs) of Indo-Gulf Fertilisers are owned and operated by select dealers and not directly by the company’s staff. The SKSK is developed as a multi-input centre coupled with advisory service. All sales are on cash and carry basis.
SPIC Agro Service Centres are run by franchise agents and the emphasis is laid on scientific agriculture with the main objective if increasing farm productivity and profitability through dissemination of technical information and availability of various agricultural inputs through a single window.
SPIC also has rural development centre for training young farmers. Other fertiliser manufacturers provide various services through the centres either owned by them or by their dealers, unemployed graduates and entrepreneurs and carry out extension and promotional activities through their own field staff.
B. Marketing Cost and Margins:
The marketing cost in fertilisers range from 12-12% of the retail price as well as total cost of the product. Transport accounts of more than 60% of the total marketing cost the other being financing costs, storage costs, margins and losses. The margins at the retail and wholesale levels are only 1-2 per cent of the farmer price.
Therefore, the channel display a very high expectation from the firms in terms of creating a demand for the product and is very conservative in placing advance orders. Therefore, the entire risk of over stocking falls on the company. Consequently, most companies are trying to reduce the length of the channel by opening their own stocking point or ensuring that stocks are made available near the market place. This is one way of managing the channel difficulties.
Credit plays an important role both at the dealer as well as the farmer level in terms of sale and consumption of fertiliser. In fact, credit has been found to be next only to irrigation in determining fertiliser consumption levels. There are two types of credit which concern the private fertiliser dealer. First type is distribution credit which he requires for buying fertilisers from the manufacturer/wholesaler.
The availability of adequate distribution credit leads to:
i. Increase in sales (particularly to marginal farmers).
ii. Pre-seasonal stocking.
iii. Meeting peak season requirements.
iv. Higher turnover.
Providing adequate distribution credit to the fertiliser dealer, or assistance in procuring it for him from the bank, is an effective tool in the hand of the fertiliser manufacturer.
The second type of credit is the production credit, i.e., farmer requirement for financing inputs, of which fertilisers is a major one. Whilst production credit is meant for the farmer, its availability reduces the burden on the fertiliser dealer of finding resources to fund his fertiliser sales. It is estimated that the availability of production credit does not cover more than 60 per cent of requirements.
Co-operatives are the major source of agricultural production credit, a sizeable part of which is made available in kind, namely fertilisers, seeds, and pesticides. The co-operative banks make the credit available to both the segments, i.e. farmers (through PACS) as well as the federations and district/taluka/village level societies.
The apex marketing federation and district/taluka/village co-operative societies are given distribution credit for financing their fertiliser purchase by the state co-operative bank or the district central co-operative bank.
D. Dealer Selection and Management:
A number of factors are taken into account while appointing a dealer such as his credibility, financial status, social standing in the area of operation, ability to conduct and develop the business, trading in other farm inputs, etc. The strength of any marketing organisation basically lies in the effectiveness of its dealer network.
While strengthening dealer network, the following points should be kept in mind:
1. To retain the services of trustworthy, reliable and committed dealers.
2. Not to appoint too many dealers in an area whereby their business would not be viable.
3. To weed out the more vulnerable dealers, i.e. who stand to woo- out when exposed to competitive pressures.
4. To look for dealers who are keen to convert their outlet into multi- input centre, by keeping seeds, pesticides, agriculture implements, etc.
5. To look for stable, financially strong dealer.
6. To make business policies transparent and instill trust.
In order to reorient the private trade channel and restructure the network, companies must take adequate interest in training dealers or their salesmen. The dealer who has his own role to play can best be trained by combination of formal dealer training programmes and refresher courses. Besides training programmes, the dealer also would need assistance from the technical marketing staff of the manufacturer to respond to localised farmer problems.
Apart from motivating the dealers and undertaking a continuous review of dealers, restructuring of dealer network is also important. Companies must be flexible enough to switch over from one system to the other, i.e., in case of need, the two tier system of distribution can be changed to a single tier system if it, in any way, helps in making material available to the remotest places and to the small and marginal farmers.
It is important to make fertiliser available to the difficult area particularly the hilly region. Companies therefore must modify their plan in order to supply material in smaller lots. Seasonal retail counters maybe opened to cater to the needs of farmers in difficult terrain.
There is a need to look at providing off-season discounts in fertilisers as a promotional strategy and the meet demand supply, imbalances which happen in peak seasons of fertiliser use. Also from the distribution point of view, there is a good potential of developing petrol and diesel stations in rural semi-urban areas as fertiliser sales outlets, where fertiliser can be stored unbanned in kilos and sold to the farmers in their own containers.
Finally, companies should work better on the distribution front now as never before. One way is to franchise the mixing and blending units in order to focus better on distribution. Second, there is need to treat fertiliser as one of the inputs in a bundle of inputs both for the economics of retailer as well as the convenience of the farmer. Networking and contracting locals as distributors can also be used a strategy to gain a competitive edge in the market through distribution.
Fertiliser Promotion and Extension:
The commercialisation of agriculture leads to demand for client specific and location specific inputs and extension. This provides scope for private effort in extension sector which has been traditionally dominated by public and the joint sectors.
But, it is important to remember that still in situation of market failure, there will be need for state sector presence if not delivery of actual extension. Besides, the regulation of privatised extension is required in order to deliver cost effective extension to the produces.
One of the major reasons for private orientation in extension activity is the cut in government spending in this sector due to fiscal pressure. Also, poor performance of the public sector has been widely criticised which prepared the ground for this change in thinking and action. The public sector was found to be not doing enough, not doing it well and not being relevant in extension.
This was further justified by the increasing dependence of the farming sector on specialised knowledge and technology. Therefore, in many a developing countries, agricultural extension has been made a private—public partnership or has been subcontracted out to the private sector.
In these countries, funding remains a joint responsibility, but the delivery has been completely privatised or subcontracted out by the government. But, the issues of payment of fees, client targeting and cost recovery still remain unresolved. It is in this context that we discuss below the various aspects of promotion and extension in fertiliser input sector.
Sales promotion includes all activities other than personal selling, advertising and publicity that stimulate consumer purchasing and dealer effectiveness. The ultimate aim of sales promotion is to increase the sales of the goods and services. Fertiliser extension has been the most important component of marketing.
In fact without extension and promotion programmes, marketing of fertilisers is merely a sales activity. Fertiliser extension as we know is a generic term. It encompasses all tools of persuasive communication to- (a) create awareness about fertiliser (b) develop and strengthen their use, and (c) make potential buyers (farmers) and service them.
It is obvious that all efforts under extension education programmes are primarily with commercial motive to promote brand name and make it popular amongst farmers. But the extension education programmes are utilitarian also as they serve the national as well as farming community interest.
The conventional methods of fertiliser extension used by different companies are grouped according to the mode of communication:
i. Direct communication with farmers by way of crop demonstrations (method and result), farmers’ meetings, farmers’ training programmes (crop seminar), field days, farmers’ conducted tour, farm advisory services, exhibitions, etc.
ii. Indirect communication through press, radio, television, slides, films, literature, posters, charts, ready reckoners, balloon hoisting, dealers’ training, product display and other displays at dealer’s premises, drama or one act plays, puppet and magic shows, folklore and music, audio-visual vans, etc.
Amongst various extension tools of direct and indirect communication listed above, it has been generally found that crop demonstration, farmers, meeting, campaign programmes and field days rank fairly high in terms of effectively educating the farmers.
For advisory service to the farmers, service cum multi-input centres are gaining immense popularity. It is a kind of single window approach, i.e., under one roof all facilities, e.g., knowledge, inputs, services, equipments, implements, etc. are available to the farmers with ease. Such a thing also helps in technological transfer most efficiently.
The objectives of fertiliser extension programmes may differ from company to company but the overall direction remains the same.
In terms of the national and company objectives, the common denominators are:
i. To increase fertiliser consumption in traditional and non- traditional area and crops.
ii. To promote balanced and efficient fertiliser use in traditional and non-traditional area and crops.
iii. To promote the use of latest package of practices in different crops and cropping sequences predominant in traditional and non-traditional area of the marketing territory.
iv. To develop and run need based programmes suiting to any specific needs of given area or marketing zone.
v. To develop effective linkages with scientific institutions and organisations involved in extension education of the farmers for promoting scientific agriculture and efficient use of inputs especially fertilisers.
vi. To develop infrastructure support and conduct human resource development programmes conductive to effective fertilisers extension.
Current fertiliser extension programmes serve a mix of these objectives by varying degrees. The cost of the extension programme accordingly varies for a fertiliser company. The emphasis today is more towards promoting balanced and efficient fertiliser use. This is an effort to increase returns on fertiliser use and thereby keep farmer well convinced of their economic viability.
The other related aspect which is receiving attention is maintenance of soil health and productivity. The framers are increasingly being advised that balance and efficient fertiliser application is necessary to maintain soil health and productivity. It is also a good practice for the safety of environment.
Promotion makes potential buyers of commodity or service aware of the existence of a product or its merits. This, sales promotion helps in converting potential buyers into actual consumers.
The basic components of a promotional programme are:
i. The communication.
ii. The message.
iii. The media and the audience.
In the case of fertilisers, communication is by the following agencies:
1. Central government.
2. State government.
3. Fertiliser industry.
4. University extension services.
5. Voluntary organisations.
6. ICAR research institutes.
The message design takes into account:
1. Benefits of fertiliser use.
2. Brand image.
3. Balanced fertilisation.
4. Efficient use of fertilisers.
Media for sales promotion in fertilisers is made up of:
1. Sample distribution.
2. Demonstration/field days.
3. Rural seminars.
4. Conferences.
5. Visit to production units/research institutes/areas.
6. Crop competition.
7. Farmer quiz.
8. Farmer/dealer training/conference.
9. Display of product at sale point.
10. Minikit distribution.
11. Concessional sales on special occasion.
Besides these, the service—oriented programmes are also used.
For example:
1. Establishment of Kisan Sewa Kendras.
2. Distribution of mini-kits.
3. Seed multiplication programme.
4. Establishment of soil testing facilities.
5. Special project (image building).
6. Adoption of village (clusters).
7. Soil testing.
8. Social forestry.
9. Reclamation of ‘Kakar’ soils.
10. Programmes for rain-fed farming.
11. Development of infrastructure.
12. Health care.
13. Family welfare.